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WARREN – Warren city officials for years have balanced the city budget by eroding its carryover cash reserves, while at the same time continuing to build up city insurance funds.
Now the city has begun using those hospitalization and workers’ compensation account funds to pay year-end expenses, according to new Warren Auditor Vince Flask.
Flask said the city took nearly $1 million – $952,000 – from the city’s hospitalization fund to balance 2015’s budget.
That’s after the city depleted its cash reserves from $1.6 million in 2012 to a negative $427,759 in early 2016.
The city now is seeking passage of a 0.5 percent income tax increase on the Nov. 8 ballot.
In 2013, when the city had $1.9 million in cash reserves in its Bureau of Workers’ Compensation account, it used a portion of that money to balance that year’s budget, Flask said.
However, the auditor could not identify the exact amount that was used.
Flask said the administration easily was able to identify the hospitalization fund money used to close the 2015 budget gap because the Affordable Care Act requires the communities to both collect and report to the federal government money collected for their health insurance premiums.
The city in 2015 collected $6.12 million for its hospitalization fund and paid out about $5.83 million in premiums, leaving a $277,831 balance.
In the five years prior, the city collected an annual average of $5.8 million from every city department to be placed in its hospitalization fund account. The city, on average, paid out $5.67 million in claims, leaving a lower average annual balance of $132,735.
Flask said he does not know how much of the hospitalization funds were used to help balance the city’s budgets in the years prior to 2015 because former auditor David Griffing adjusted the amount he charged departments every month.
In 2014, for example, the lowest amount collected was $304,189 in July compared to the $736,971 collected in May.
“David (Griffing) worked to address problems in individual department budgets on a month-to-month basis by charging the departments lower percentages in their hospitalization payments so they could address whatever financial issue they may have been facing.” Flask said. “He studied the budget on a daily basis and filled the holes as he came to them on a monthly basis.”
The annual total net carryovers from 2010 through 2015 in the hospitalization fund was $796,407.
At the beginning of 2016, the city had $1.05 million in its hospitalization fund. The city in 2015 collected, on average, $509,118 per month for its hospitalization.
“There is no rule on how much the city can remove from the hospitalization fund but it would not be wise to take so much that would not allow us to pay claims,” Flask said.
“The city has a hospitalization fund because it is self-insured, which requires it to have funds available to pay on claims,” he said.
Money paid into the hospitalization fund is primarily paid by the city departments, with employees with health insurance policies paying a small portion every payroll period as a result of a change in union contracts during the last contract period.
Neither council members Eddie Colbert, D-at large, nor John Brown, D-3rd Ward, expressed concern about the city dipping into the hospitalization funds.
“It is money that is banked,” Brown said. “If there had been a lot of claims, then we could not have had so much money in reserves.”
Colbert suggested Griffing purposely collected so much money from the departments that the cash reserve would continue to grow.
“Obviously, it was to build up a nest egg in that line item to create a ‘rainy day fund,'” Colbert said. “That money could only have been derived by over funding hospitalization from the general fund.”
Colbert said the city’s insurance policy is designed so if there are a large number of claims were filed it would not bankrupt the city.
“The hospitalization fund is not in jeopardy,” Colbert said.
However, because so much already has been taken from hospitalization and BWC, and because there is no carryover, the city will not have these options to appropriate funds to balance its budget.
“The auditor this year will have to write a legitimate budget based on the money the city is expected to earn and spend during 2017,” he said.